The USMCA and the Mexican Automotive Industry

Preferential treatment for U.S.-made vehicles, Mexico's transformation into export base

2022/04/01

Summary
USMCA: U.S. and Mexico/Canada feud for full implementation in 2023
Mexican market: Production vehicles will be more focused on U.S. exports, while domestic sales will depend on low-priced imports.
Mexico domestic Sales trend: Recovery for the first time in 4 years, but sales remain low
Automaker activities
GM: Production for the U.S., further shifting domestic sales to vehicles imported from China
VW: Strengthens its SUV lineup for the U.S. market with the start of production of the “Taos”
Toyota: Production in Mexico consolidated into Tacoma for the North American market
Stellantis: Started selling re-badged models from China joint venture
Hyundai/Kia: steadily increasing market share in domestic sales, closing in on the top three
Ford: Switching production models to popular light trucks and strengthening production system
Honda: Domestic production consolidated into HR-V
Mazda: Main axis of production will shift from passenger cars to CX-30 SUVs
Production Forecast by LMC Automotive: Mexican production volume will reach a record high in 2023 and achieve 4.35 mn units in 2025

Summary

GM's Silao Plant in Mexico
New union chosen under USMCA rules
(Source: General Motors de México)

The USMCA (United States-Mexico-Canada Agreement) replaced NAFTA (North America Free Trade Agreement: enacted in 1992) as the trilateral trade agreement among the three North American countries, coming into effect in July 2020.

Full implementation of the tariff-free requirements for automobile imports, which are stricter than those of NAFTA, will be delayed until 2023, but there have been conflicts between the U.S. and Canada/Mexico over the interpretation of the standards for calculating the intra-regional procurement rate and preferential treatment of U.S. vehicles, such as subsidies for U.S.-made EVs. Future discussions and agreements may affect automakers' investments and vehicle strategies.

Meanwhile, investment in Mexico has been strong, with automotive OEMs and parts suppliers increasing production and capital investment in their Mexican plants, making further progress even amid uncertainty over the future of the USMCA debate. OEMs have clearly positioned Mexico as an export hub, a trend that is further reinforced by the fact that many U.S.-based automakers, Toyota, and other manufacturers export the majority of their production models to the U.S. and Canada. Plans for the refresh of production models and investment to increase production have continued to be announced in response to demand trends in the U.S., such as the shift from passenger cars to light trucks and the prospect of the spread of EVs in the future.

This report covers the key developments surrounding the USMCA a year and a half after its implementation, as well as the latest developments in the Mexican automotive industry. In addition, the Mexican production forecast by LMC Automotive is also reported.